|Felonious Monkey Business.|
"The Big Short", of this post's title, is the name of a film released seven long years (the exact number of years for the statute of limitations to run out) after the Financial Crisis, that denouement of the reign of criminality-run-amok, usually referred to as Free Market or Cowboy Capitalism.
Jan 12, 2016: Why the "Confusingly cautious consumer?", BofA wonders.
(Could it be the Ridiculously Recessionary Recovery?)
As the price of oil was approaching the stratosphere in 2007/8, the talk of peak oil hit a peak of its own. This may not be coincidental, but it was surely, to those who were even interested in the concept of peak oil, co-incidental. They were occurring simultaneously. It was almost as though the Neocons and the Neo-Liberals were both stoking their respective advocates to prepare them for the Big Bang they all knew was on the horizon, despite the Big Lie that Bernanke foisted on a public too busy trying to buy a house too big for them to ever occupy, in a suburb too distant for them to ever be able to commute to reasonably, in their SUV too large to fuel and park and too unwieldy to stay upright when driven too fast. But such reckless disregard of risk proved to be "Unsafe at any Speed", a phrase coined decades ago by Ralph Nader to describe the sporty Corvair, that aptly describes Kamikaze Kapitalism today.
Fear and greed drove the country then, and worked well to trick a polity that was in fact losing their wealth at an unprecedented rate, into feeling, by individually taking on more risk than they could possibly handle, more affluent than they actually were. But, looking at the fundamentals, it was an affluence that was contractually engineered to be sucked right out from under them and returned, multiplied by fees and penalty clauses, to the coffers of the private sector banks with the help of the largest, most powerful GSE in history: the Fed.
More than any of the other politicians in the current presidential race, The Donald has realized that the counterpoised balance of fear with greed that existed then has turned tail now. Because the electorate has learned, from the dire circumstances visited upon them by their own elected officials, and the appointees that they put in important positions in the government and industry, that the new balance is no longer so much between fear and greed as, there being no resources left to be greedy about, no avenue left for the down-trodden in society to ever climb out of the despair of penury, it now being obvious that there is nothing but fraud at the heart of the system, such that every contract, following the example set by legislation passed by the Congress of the United States, is written with a catch phrase, once referred to as "the small print" which, like Bernanke's "wealth effect", is just one more example of the industry's open admission of planned, conspiratorial fraud lying at the heart of the system epitomized by that phrase.
"The Wealth Effect", a proclaimed policy of the Central Banks was contrived to convince the public yet again (as they always beg to be fooled again (Sorry Roger Daltry)), that they have more resources than they really do in order to convince them to take on more risk than they really should, leaving them once again vulnerable to a downturn during which the banks can regain their losses, scooping up valuable properties for pennies on the dollar, as you are now witnessing them doing in the fracking fields of America. And completely bought and paid for by those who use thinly veiled threats of blackmail as a tool of rule, has switched the working dynamic from fear-vs.-greed to fear-vs.-hatred.
The underlying argument that is not even mentioned during any of the so-called Presidential debates so far, is the inherent advantage that the free movement of Capital, of which The Donald is a champion, over the free movement of Labor, which, having much more complicated forces constraining it, is neither free from borders, nor untouched by differences in language and culture, as Das Kapital supposedly is. This leaves the tool of immigrant-bashing open to those demagogues who thirst for power but despise those over whom they plan to exercise it.
As we're seeing in China now, as the central government vilifies the dollar and warns its citizens that the Greenback is about to collapse, leaving their dollar holdings worth a mere fraction of their current value, propaganda can be used to stoke fear of even a foreign State's currency, even as one's own collapses. By terrifying the populace (not constituencies, unlike in the West, in China there is no need to even pretend that there's any connection between those in power and the people over whom they rule) they hope to force a nationwide dumping of dollars and a switch into the tumbling yuan, thereby increasing the demand for it and raising its value. They can then continue its devaluation effectively trapping its citizens from ever leaving, since eventually, it'll take a million yuan to be able to purchase but a thousand dollars (as an example in the extreme).
As peak oil was used then, climate change is being used now, to mute the left, that side of the political spectrum that should object to what is going on. But, as in 2008, the left is left, not only silent as to the onrushing disaster, but actually cheering it on, because, just as the spike in oil prices appeared to be actually proving the Peak oil theory everyone else derided, so today, Climate Change has stepped in to take the place of the remaking of the geopolitical map in ways that those who champion the theory of global warming would expect it to, once again using them as willing pawns, as warmly cocooned in their own mantra of political correctness as the myriad supernaturalists are in their denial of any responsibility for the havoc wreaked by their love of fire arms and destruction of an eco-sphere they moronically insist their faith in unnatural acts, traditionally referred to as miracles, relieves them of the necessity of taking care of for future generations; generations they consequently doom to a life of penury.
Just as a preacher can stand in the middle of a town that has been completely decimated by a tornado and say with a straight face that "God is showering His blessings on us, this is a sign to repent, and then the glories of the after life will be Yours!" (with the supernaturalists' usual proviso that in order to receive said well-earned rewards, you merely have to drop dead), the climate change believers, or more importantly, those who believe we need to "do something" about it, as long as they aren't forced to change their jet-set lifestyle, can stand in the middle of a world in the grip of the strongest, hottest El Nino on record and believe that all they have to do is divest from fossil fuel companies, build a few windfarms and solar-enabled power plants, and life, as we know it, or , more accurately, as they know it, can continue much the same as it has before. Thus enameled in their sheath of surety, they can back the production of ethanol, which production coincided with the largest build-up of coal-fired power plants (to process all that corn) in the shortest space of time in the history of the country. All to add to their ICE machines which then, unknown to them, because they didn't care to know, reduces the mileage of said vehicles, since the energy intensity of ethanol is a mere 69% of that of the gasoline it displaces, naturally necessitating one to burn more fuel, discharge more CO2, to drive the same number of miles. Thus, the country, as can others that use bio-fuels, can truthfully claim that their citizens drove less miles, however, unless the fuel was gasoline, they consumed more energy driving those fewer miles, resulting in more CO2 being pumped into the atmosphere, than if they had followed the know-nothing crowd and done nothing.
This is where "The Big Short" comes up a little short. It does a good job of pointing out to a wide audience, (well, potentially wide; there weren't a dozen people in the theater when I went to see it), that, far from "Nobody saw it coming", those powers that they refer to who didn't see it coming, Greenspan being the main one mentioned, on the contrary, saw it, planned it, and, in Greenspan's case, got out of the way, with their wealth entirely intact, in order to leave their successor the task of explaining just how, far from causing the disaster by their reckless policy of pushing a constant flow of adrenaline into the sclerotic veins of the "resilient" economy via both unprecedented low interest rates and unparalleled military spending, has supposedly saved us from the ramifications of hitting that iceberg he just steered the entire global economy into despite not only the warning signs, but the cries of alarm from people, amongst whom, remember, were "Goldman Sacks and Pillages", (whose ex-employees were sprinkled, like so much acid rain, all through the Bush administration) who were positioning themselves, to the detriment of the customers they "serve", for just such an eventuality.
It was in fact, precisely because has-Ben Bernanke was aware of the likely result of so much Fed-meddling in the idiotically-monikored 'free-market' that he had an off-the-shelf response to the crisis that just happily dove-tailed with Goldman alumnus, Treasury Secretary Paulson's, demand that 3/4 of a trillion dollars be wrested from the public to pour into the money pit dug by private malinvestment, wherein the losses got covered by the public while the profits all got tucked safely away in off-shore tax havens where they would be safe from being requisitioned to assist that part of the public that was hoodwinked. Once again with a Bush at the helm. All GW had to do, once again,was follow Daddy's lead, and bury all the losses in the National Debt, which Bush '41 conspired to do after policies he championed brought the S&L industry to its knees.
But, as "The Big Short" made manifest, lots of other people foresaw the collapse of the house of cards built entirely of and by jokers; it was only the Fed who saw what was to come next. Other prognosticators were either convinced, a la Brad Pitt's character, that the only currency that would be left after the dust settled would be seeds, or the James Turk/Jim Sinclair scenario wherein gold would be the magic investment that, being 'real money', wouldn't crash with the other commodities, or the more popular, or at least better-publicized, Peter Schiff-predicted outcome, would be a raging inflation that would burn up the value of all our by-then worthless dollars.
None of them, however, would have their feet held to the fire, the way the Fed would, to extricate some semblance of a monetary system from the wreckage the recklessness of the entire globe's well-to-do brought upon the rest of mankind. For that's what it was, the WW1 of the finance kings, wherein, as the monarchs of WW1 simply threw millions and millions of their "subjects" (who they perceived as mere objects), to be used as what they euphemistically referred to as cannon fodder, feeling that the term "dead meat" was a bit on the crass side, instead now, using finance instead of cannons, the elite go about their business, not of providing for mankind's needs, but instead, the natural result of encouraging continued accelerated growth in the human population, but of having to get to the more serious business of facilitating their exit from their earthly plane of existence. To help them, "move on to a better place", the reason religion is becoming more and more enmeshed in the politics of the State, it does such a good job, given that the requisite fees are paid in the form of tax-deductible donations, to lull the benighted flock into a state of somnambulant supernaturalism. Faith will save you. No ... it won't. It'll save Them.
What this gave the Fed was the freedom to do what they otherwise would be constrained from doing: eliminate a huge swath of the public's wealth, while reassuring those who didn't get thrown out into the street that those that were deserved it because of their ill-fated decision to take on an inordinate amount of risk by assuming loans that they could never, in their wildest dreams, have ever realistically thought they could have paid back. That was never even the point, as their realtors pointed out to them, since the price of your property will always go up, you can just sell when you need to to settle your debts (which philosophy was completely backed up by Federal Reserve "statements", (lies would be a more apt word)).
Another problem with the movie was its failure to mention counter-party risk, although they skated around the issue several times. This is in the eventuality that, let's take AIG as an example, the party who took the other side of your bet, goes under before they have to make good on the bet for which they've been collecting premiums. The film emphasizes the fact that the banks will always salivate over a sucker's bet and gladly take your money, yet will never, and it is not a mere oversight that they didn't mention this in the film, retain enough resources should they be wrong, because the entire logic behind them taking the bet in the first place is that you're an idiot and they are not, so why should they bother to cover a bet they can't lose? They are literally simply taking your money, with not the slightest intention, there not being the wherewithal to do so, of covering it should you (HAHAHAHAHA ... what a chump!) be right.
This was the business model AIG emulated as they covered Credit Default Swaps (bets against the bonds being used to fill the housing bubble with the hot air it needed to keep it inflating) for which they retained absolutely zero capital to cover; they just took their "insureds" (if there are no resources, no matter what one's stated intentions are, to pay a loss, there is, in actuality, no insurance) money and ran, literally ran, away with it. None of that cash from their over-generous bonuses that were all based on fraud, was ever clawed back. A sign of the greed of the financial community, but what the reformers such as Elizabeth Warren fail to point out, is the complete complicity of the government on all levels, as, should they claw back the bonuses, then the substantial taxes that were collected on those bonuses would then need to be refunded, an entanglement that is such a rat's nest, it could never be resolved.
On January 8th of 2016, we saw another record methane reading for the global atmosphere. The most recent single point peak for NOAA’s METOP measure hit a new all-time atmospheric high of 2,963 parts per billion or just 37 parts per billion shy of the milestone 3,000 parts per billion threshold. (Similar to atmospheric CO2 dramatically breaking through the 400ppm milestone last year).
Yes, that's right. Just as it was pretended that there was no such thing as peak oil, even as the mechanism for stopping the inexorable rise in energy use that kept climbing, climbing, (a steady 1.5%/year, whereas production was flat) such that the production of oil was unable to keep up with its squandering, was always obviously going to be nothing short of a global depression, there being no way to make it politically palatable to a world convinced of its unending flow unto eternity, we must now look back and reconcile ourselves to the fact that the financial crisis was not a crisis in confidence at the exact moment it happened, but a planned debacle. One that was necessary in order to put a halt to the growth in the burning of fossil fuels, not because of peak oil concerns, and certainly not because of concern about the overload of CO2 the atmosphere and oceans were being filled with, but because, fracking waiting in the wings, US and OECD consumption was getting so out of hand as to jeopardize oil's affordability and supply for the Asian countries which the elite of the world know are necessary because it is those economies that actually produce the necessities of our existence, and should their energy supply contract, or become too prohibitively expensive for too long, it would constrain the supply chain to an unacceptable degree.
So, given that, and given that the elites are now falling all over themselves to finally come to the table on climate change, one must look at their real intentions with the blinkers off. Just as the global depression they spawned (and before you become too dismissive of "the very idea!" that planners (and remember planners who plan in secret, as the Fed does, are conspirators) would pull something like this off, remember that the man who was Chairman of the Fed at the only time since WW2 that a depression occurred, the onset of which was initiated by an action of that same Fed by not rescuing Lehman's when their previous action, of bailing out Bear-Stearns, had signaled their intention of doing so, regarded himself as the foremost expert on ... you guessed it ... The Depression! Ta-dah! Gee. What a ('nother) coincidence!)
Now, with this in mind, it is easy to see that, since absolutely nothing changed after the largest financial fiasco in world history, and that those who committed the most crimes and became the richest on the backs of their fellow citizens were, just as after the events of 9/11, not only not fired, but were promoted! ... emulated, even, such that we now know what's coming next and who will be thrown under the Hummer. But what we've also learned, at least to some extent, is that what was was the best it's ever going to be, the latest rout in the price of oil being the harbinger of the dark days that we're promised as a future. The list of failed investments and misallocated resources simply gets larger by the year.
1) Social Security promises made decades ago are being broken, always are when the retirement age is raised, the supposed reason being that we are living longer now: the operative word being now. (although even that is contestable, longevity is believed to be increasing simply because it had been increasing, it is, however, DEcreasing).
2) Oil. "WTI Tumbles To $31 Handle." Just as they make no more land, they're not making any more oil either, so a sucker's bet went down with investment newsletters promising a sea of rising dividends to investors in the oilpatch, investments that have proved to be almost a carbon copy of the MBS that was used in the last cycle of fraud. They pay well up front, but as time goes on they begin to fail, until, for those who have waited too long, they can't get out in time, forgetting, having been forced into forgetting by none other than the Fed again, that it is the return OF capital that should always take precedence in investment decisions, not the return ON capital, which the "Risk on" dynamic of the Central Banks' regime has fostered. Trillions of investment dollars were siphoned into wells that could never produce enough to pay back the investment poured into them. But, just like subprime loans, it was never meant to; it was only meant as a mechanism for re-funding the banks, which it has done, and is doing, admirably, as they now take over valuable property that in a few years,as the glut subsides, the banks, having picked them up for pennies on the dollar, can turn around and sell at a whopping profit.
3) Auto loans, a growing number of which are now subprime, no money down , 6 years to pay for an ICE machine that is obsolete before it was even purchased. Every year since the beginning of the millennium the US has sold close to 17 million vehicles per annum, more than a quarter of a billion ICE machines, with the worldwide total more than double that amount.
4) Student loans. This is a nightmare.
5) I'll stop at five, (but there are many more): Sovereign debt. The new subprime on which the world's economy is leveraged, or more accurately, teeters, because so much has been balanced on top of it. The Jenga of the world monetary system with the proviso, that ,whereas some really may have believed in the subprime markets' bonds being tranched in such a clever way that they were in fact triple A (after all, there's a sucker born every minute), nobody believes that Ukraine, Egypt, Libya, Iraq, Yemen, the Gipsi countries: Greece, Italy, Portugal, Spain, Ireland, and now the emerging markets (emerging from what? Bankruptcy?) of Brazil, Russia, India, China, and all the smaller countries that have purchased bonds of failing states, should have bonds rated triple A. But they do.
6) I lied. One more. After tweaking the economy using financial schemes and fraudulent claims for eight long years, the Reagan/Bush presidency ended its tenure with a market crash and a recession that was only mitigated by Greenspan's deft manipulation of interest rates to bail out the banks and others caught with their pants down, and they weren't wearing shorts, either. Then, using other economic tricks and pushing more financial legerdemain into practice, Clinton stoked the tech boom and crash and left office with oil @ $11/bbl. Which Bush then pushed up to $147/bbl, for his Texas cronies, once again, manipulating the housing market and price of oil to jerry-rig the entire "Free Market"economy. Daddy taught him well. Remember that as you look at his bro, Jebba da Glut.
Now, Obama, having a Fed that actually brags about manipulating the housing sector, stock market, and banking and oil sectors by various forms of hocus-pocus referred to as QE this and QE that, in order to get the economy "back on track" (oh, it's on track alright ... ), resulting in the present situation where the oil price is collapsing in the same way now as it was rising in the GW era then. And it'll bring the economy down with it, as it did then.
This does not bode well. Remember, the Fed was created to take the violence out of the inevitable depressions that Capitalism periodically plunges the economy into. It is not a trick of the cards, it is built into the game, and those that know this know that although you can't stop this cyclical phenomenon, you can fool most people into believing you have, at least long enough for you to leave them holding the bag while you Madoff with the swag.
This should put us on notice that once again Marx was wrong. If history does repeat itself, it is as farce the first time, and the second, with country after country engulfed in War of one kind or another (currency, economic, proxy, drug, civil, hot, or cold) as tragedy.